Oil and Natural gas Corp (ONGC) need not pay a premium for government stake in Hindustan Petroleum (HPCL) since the latter is widely traded and fairy valued by the market and the transaction would involve no change in state control over the two companies, a senior executive at ONGC said.
The government is planning to sell its entire 51.11% stake in the HPCL to ONGC, according to people familiar with the matter but hasn’t yet officially communicated its decision to companies.
Stock markets are concerned about the price ONGC may have to pay for acquiring the refiner. The transaction would also influence the status of Mangalore Refinery and Petrochemical (MRPL), jointly promoted by ONGC and HPCL, the executive said. “After ONGC takes over HPCL, MRPL will be managed by HPCL. There is no logic for ONGC to have two companies in the same segment,” said the ONGC executive. “HPCL is rightly placed to handle MRPL since both operate refineries.” ONGC and HPCL own 71.63% and 16.96% respectively in MRPL, while the balance 11.42% is owned by the public.
HPCL has in recent days pitched for taking control of MRPL. The terms of the ONGC-HPCL deal are still being finalised but speculations abound, including on how much premium ONGC may have to pay the government for HPCL shares.
“HPCL is already fairly valued by the market. It has a very high free float and is very actively traded. In such a scenario, the question of premium just doesn’t arise,” the executive said. “Moreover, the point of control premium is not valid since the control of both companies would rest with the government after the transaction, as it does now,” he said. Of the public shareholding of 48.89% in HPCL, stateowned Life Insurance Corp owns just about 2% while the balance stake is owned by numerous foreign and domestic institutions and retail investors.